An abundance of natural resources is both an opportunity and a challenge for developing countries. A number of resource-rich, low-income countries receive amounts of foreign aid that are similar to or larger than their actual or potential revenues from natural resources. A new policy research working paper by Octave Keutiben and me develops a growth model to look at some ways in which the donors may help governments of such countries to use their resource revenues productively and minimize the magnitude of risks created by resource rents. The paper’s key conclusion is that making aid countercyclical helps to achieve higher economic growth, and so does conditioning disbursements on enhancement of public capital.
Internet pioneer and Google's Vice President Vinton G. Cerf will talk about the major emerging trends and threats about the Internet that will dramatically shape the global economy on July 14, 2014 at the World Bank headquarters. Watch the event live here.
Facebook’s Mark Zuckerberg writes in The Wall Street Journal about global internet access and its impact on poverty reduction.
The IMF has a new, Global Housing Markets database that tracks developments in housing markets around the world.
Last week I had the privilege—and pleasure—of delivering a lecture series at the KDI School of Public Policy and Management. The KDI School is an educational arm of the Korea Development Institute, Korea’s leading and highly regarded economic policy think tank. I was much impressed by the KDI School’s program, which aims to foster leadership in economic development and public policy. Course participants are drawn from a variety of public institutions in emerging and developing economies. The School’s philosophy places a strong emphasis on the sharing of development experience among participants, peer learning, and dissemination of best practice. Korea’s own development history is rich in lessons for public policy, which the program seeks to share with participants drawn from across the globe. The School has positioned itself as an international hub for sharing knowledge on development among policymakers and practitioners, and its mission receives generous support from the Korean Government.
Smallholder agriculture in many developing countries has remained largely self-financed. However, improved productivity for attaining greater food security requires better access to institutional credit. Past efforts to extend institutional credit to smaller farmers has failed for several reasons, including subsidized operation of government-aided credit schemes. Thus, recent efforts to expand credit for smallholder agriculture that rely on innovative credit delivery schemes at market prices have received much policy interest. However, thus far the impacts of these efforts are not fully understood.
A new World Bank policy research working paper by Bill Battaile, Richard Chisik, and Harun Onder shows how Dutch disease effects may arise solely from a shift in demand following a natural resource discovery. The natural resource wealth increases the demand for non-tradable luxury services due to non-homothetic preferences. Labor that could be used to develop other non-resource tradable sectors is pulled into these service sectors. As a result, manufactures and other tradable goods are more likely to be imported, and learning and productivity improvements accrue to the foreign exporters.
The Purchasing Power Parity (PPP) rates released in April 2014, based on the 2011 round of the International Comparison Program (ICP), entail some seemingly dramatic revisions to price levels and real incomes across the world. Looking back over the last three ICP rounds, back to 1993, it feels like we have been on an “ICP roller coaster” with falls in the estimated real incomes of many developing countries up to 2005 and then rises in 2011. The 2011 revisions have been taken to suggest substantially less poverty and inequality in the world than the 2005 round had implied. If we believe these new PPPs then the economic map of the world is quite different to what we thought. But can they be believed? A public debate has been generated by the new PPPs.
On July 9, 2014 Martin Ravallion (Department of Economics, Georgetown University) will shed more light on this ongoing debate at the Poverty and Applied Macro seminar hosted by the World Bank's research department.
Traffic congestion, air pollution, accidents – the negative externalities from car transport are not just a popular field of economic research, but also a daily arduous reality for millions of commuters around the world. However, there is more: carbon emissions and climate change may be a less visible externality from road transport, but the economic and social costs will be substantial and borne at a global scale.
When dealing with such externalities, pricing instruments (such as carbon or fuel taxes) are the policy response favored by economists: if car users paid the full cost of driving, they would adjust their driving practices and thus reduce the negative environmental and social impacts.
In a new World Bank policy research working paper, Branko Milanovic and I assess the impact of overall inequality, as well as inequality among the poor and among the rich, on the growth rates along various percentiles of the income distribution. The analysis uses micro-census data from U.S. states covering the period from 1960 to 2010. The paper finds evidence that high levels of inequality reduce the income growth of the poor and, if anything, help the growth of the rich.
A new World Bank policy research working paper by Andrei Levchenko, Claudio Raddatz, and me analyzes theoretically and empirically the impact of comparative advantage in international trade on fertility. It builds a model in which industries differ in the extent to which they use female relative to male labor and countries are characterized by Ricardian comparative advantage in either female labor or male labor intensive goods. The main prediction of the model is that countries with comparative advantage in female labor intensive goods are characterized by lower fertility. This is because female wages and therefore the opportunity cost of children are higher in those countries.
Natural resources are being discovered in more countries, both rich and poor. Many of the new and aspiring resource exporters are low-income countries that are still receiving substantial levels of foreign aid. Resource discoveries open up enormous opportunities, but also expose producing countries to huge trade and fiscal shocks from volatile commodity markets if their exports are highly concentrated. A large literature on the "resource curse" shows that these are damaging unless countries manage to cushion the effects through countercyclical policy. It also shows that the countries least likely to do so successfully are those with weaker institutions, and these are most likely to remain as clients of the aid system. A new World Bank policy research working paper by Anton Dobronogov, Fernando Brant Saldanha, and me considers the question of how donors should respond to their clients' potential windfalls. It discusses several ways in which the focus and nature of foreign aid programs will need to change, including the level of financial assistance.